It’s Quality, Not Quantity

Fairmont Hotels & Resorts Inc. makes the list with just two properties

November, 2003

Even though Fairmont Hotels & Resorts Inc. (NYSE:FHR) has a history spanning back to 1886, it is a relatively new name here in the Islands. It was just four years ago that the company started fishing around for properties in Hawaii, and only two years since its first big catch: The Fairmont Kea Lani Maui, which it purchased from private investors for $214 million in 2001.

Fairmont Hotels & Resorts Inc. Senior Vice President of Real Estate Neil Labatte says the expansion into the Islands was a natural progression for Fairmont, which began as an upscale hotel chain with several renowned hotels in its portfolio, including The Plaza in New York, San Francisco’s The Fairmont and The Fairmont New Orleans. In 1999, when Canada’s largest owner-operated hotel corporation, Canadian Pacific Hotels, purchased Fairmont Hotels, it set out to become a major player in the luxury hotels and resort market worldwide – including Hawaii – through hotel management and strategic resort purchases.

“Obviously, Hawaii is a significant destination for the United States and for Japan and other parts of Asia, and we had a relatively significant customer base coming from [those areas] in our current portfolio,” says Labatte. “So it made sense for us … And rather than pursue a strategy of management, we [acquired properties] as a result of our confidence in the marketplace.”

In addition to the Kea Lani, the company purchased the Fairmont Orchid Hawaii on the Big Island’s Kohala coast for $136 million last year. They are Fairmont’s only properties in Hawaii, however, with the assessed value for buildings and land on both holdings totaling $291 million, the two properties are enough to land Fairmont the No. 18 spot on Hawaii Business’ Top 20 Wealthiest Landowners list.

Keith Vieira, senior vice president and director of operations for Starwood Hotels and Resorts Hawaii, which managed the property for five years prior to Fairmont, says at least one of the properties is poised for even higher valuations down the road. “I’m happy with the growth Starwood provided to the hotel, as evidenced by the sales price, but I think over time the market will continue to strengthen,” says Vieira. “When we started actual performance justifications on [the Orchid], we were basically going on faith, because we didn’t have the numbers to back it up. But now the property has had solid performance year after year, and that makes it a lot easier to justify an even higher sales price.”

Fairmont is doing more than crossing fingers that the Orchid will fare well. It’s investing $10 million toward some modest renovations and rebranding efforts. Labatte says, “It always takes a little bit of time, once you switch the name on a hotel, to get the full benefit of that.”

In the meantime, the Kea Lani has proven itself to be a tremendously successful investment for Fairmont. While the company doesn’t disclose sales for individual properties, it will reveal that Kea Lani has grown to be one of the top-three earning properties within Fairmont’s owned-properties portfolio.

Fairmont’s Labatte says the company is always looking for new opportunities in the Islands, although it’s more likely to look for management opportunities rather than additional acquisitions at this point. “We’ve just made two huge purchases in Hawaii, so we’re obviously optimistic about the future of the Islands,” says Labatte. “We’re very proud of the success of Kea Lani, and we’re just hoping The Fairmont Orchid will meet our expectations, too.” If the Orchid’s gross annual sales in 2002 (which, according to Starwood, was $58 million) are any indication of what’s to come, they should have nothing to worry about.